Anglogold Ashanti PLC (AU) 2020 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the AngloGold Ashanti Q3 2020 Market Update Conference call. (Operator Instructions) Please note that this call is being recorded.

I would now like to turn the conference over to Stewart Bailey. Please go ahead, sir.

Thank you, Danai, and thanks, everybody for joining us for our Q3 market update. Before we start, I would ask you please to look at the safe harbor statement, which is at the front of the presentation. It contains important information, particularly regarding the forward-looking statements. And I'd urge you to reference it carefully.

We have a full-fledged team today. Christine will be talking through a high-level view of our performance and strategy; Ian Kramer, our interim CFO, will be talking to the financial performance; Sicelo Ntuli, our Chief Operating Officer, for the Africa region will be talking through those operations; Ludwig Eybers, doing the same for the International operation, before Graham gives us a detail walk through the Obuasi project performance; and Christine will wrap up.

Without further ado, I'm going to hand over to Christine.

Thanks, Stewart, and good day, everyone. Let me start by reiterating AngloGold Ashanti strategic objectives. This remains precisely and responsively deliver the quality production aimed at widening margins, extending mine life and improving the overall quality of our portfolio, while focusing on disciplined capital allocation.

Back in 2014, we committed ourselves to a long-term goal of creating a self-sustaining company, which would offer real exposure to gold and improving returns over time, while not asking shareholders to recapitalize the business every few years. I'm pleased to say that not only have we consistently delivered on that objective, but it remains essential to the way we do business.

COVID-19 does not change that. We've been fortunate enough to navigate the pandemic through a combination of proactive initiatives, quick adaptation when necessary and, of course, be supportive gold front. We took none of this for granted.

We're mindful that there are many who are struggling, and we continue to lend support to our host communities and others to ensure we all come out of this as fast as possible. We're committed to maintaining our discipline, a trait which has stood us in good stead through much linier time than this. We've also continued to strengthen our balance sheet capturing wider margins, growing ore reserve and ramping up Obuasi to full production. And the bridge that runs through all of this work is our effort to maintain and strengthen our markets to operate through effective ESG practices.

On the safety front, we tragically recorded one fatality during the third quarter, which we focused at our H1 results. That took place at Obuasi in July, where a security guard passed away after being struck by a private vehicle at the entrance to an employee's housing estate. This is another hard reminder of the essential work and attention required to achieve 0 harm at all of our work cases. We have a firm foundation on which to build those improvements with an all-injury frequency rate, which improved by 31% year-on-year to 2.23 injuries per million hours worked, an all-time low for AngloGold Ashanti. We continue to proactively manage the COVID-19 impact across our operations.

Moving on to Slide 6. As we discussed with our Q2 results in August, production and capital remain heavily back in (inaudible). This is especially true for classics this year. Production this year has been resilient, particularly in light of substantial disruption from COVID-19. For the first 9 months, we produced 2.3 million ounces, setting up 75% of the way to the midpoint of full year guidance. Over Q3, production of 837,000 ounces was 11% higher quarter-on-quarter, underpinned by strong performances at most times. Sunrise Dam and AGA Mineração were the standouts.

Obuasi was another star continuing its ramp-up with a 52% quarter-on-quarter increase in production. COVID-19 costs only around 18,000 ounces of production with most of it, again, coming from South Africa.

The cost performance was strong. All-in sustaining cost rose 1% year-on-year to $1,044 per ounce. Once you strip out the $51 an ounce impact related to COVID-19, the underlying number would have come in below $1,000 an ounce.

We generated strong improvements in cash flow on every metric. Free cash's flow was most [profitable] year-on-year to $339 million. That's all the more impressive, we would consider it doesn't account for a considerable chunk of cash, which remains in the DRC away in repatriation. Ian will talk to that in a little more detail in a moment.

Net debt almost halved year-on-year to $875 million, that's the lowest in almost in a decade. This was due mainly to strong cash generation and was helped along by the $200 million initial proceeds from the sale of our producing assets in South Africa. With supporting debt and rapidly increasing cash flow, you can really see our leverage improve.

Net debt-to-EBITDA came in at 0.36x, which is the lowest level since 2011. Our all-in sustaining cost margins has grown to a healthy 45% during the quarter, helped by our focus on cost control and, of course, the strong gold price. The average spot price for Q3 was $1,911 an ounce.

Looking at the first 9 months of the year, that margin has widened to 45%, up from 25% in the same period last year. This 3 percentage point increase in margin over that period has translated into an almost tenfold increase in free cash flow generation, again, demonstrating our strong leverage to the gold price.

Moving on to capital allocation. We have a clearly defined capital allocation framework, which requires that we improve returns to shareholders whilst balancing our competing capital priorities to help in upgrading our portfolio and improving the balance sheet where be possible. I'm pleased to announce an increase in our dividend payout ratio by 10% to 20% of free cash flow generated before growth capital. As the slide shows, this shift nicely rebalances our capital allocation and improve the direct reward to shareholders. Based on the last 12 months performance, this formula implies a competitive dividend yield of around 1.9% on our current share price.

We remain focused on improving the quality of our production over the long term. We've traded out relatively higher cost, shorter life ounces in South Africa including Mali while simultaneously ramping up lower cost and very long life production at Obuasi.

While we've decided (inaudible) are marching Obuasi safely towards commercial production, we're making excellent headway in increasing development in brownfield operations, both aimed at improving operating flexibility and increasing reserves. Balance sheet strength remains essential plank in our approach, supporting feasibility studies at Gramalote JV and Quebradona and (inaudible) close to realizing value from 2 top tier projects in Colombia.

With that, I'll hand it over to Ian Kramer to cover the financial performance over the quarter.

Thanks, Christine, and good day, everybody. We have delivered a solid operational and financial performance for the first quarter of the year. We saw the last quarter in retail South African operating assets contributed to the group performance before the sale thereof to Harmony Gold. The sale was concluded at the end of the quarter, taking -- with Harmony Gold taking control of these assets from 1 October.

Despite the accounting treatment of the South African assets of discontinued operations, I will discuss the performance of the group as a whole to make comparisons against last year's performance easier. Production for the quarter increased by 1% to 837,000 ounces compared to the same quarter last year. The solid production result was underpinned by strong performances at most sites with standout performances at Sunrise Dam and AGA Mineração.

Our 2 redevelopment project continued to its ramp up, delivering a 32% quarter-on-quarter increase in preproduction ounces. These performances assisted to support the impact of reduced performances at Tropicana and Cerro Vanguardia. Our all-in sustaining cost rose by only 1% or $13 per ounce to $1,044 per ounce in the first quarter of 2020 compared to the first quarter of 2019. This mainly reflected higher cash costs.

Adjusted earnings before interest, tax, depreciation and amortization or adjusted EBITDA increased by 72% to $803 million from $468 million in the first quarter of 2019. Cash flow was robust, demonstrating significant support from the rising gold price. Free cash flow generated was $339 million in the third quarter of 2020. This was a near fourfold increase from the $86 million generated in the comparable quarter of last year as a result of the (inaudible) higher gold prices, lower cost from continuing operations, lower capital expenditure, which was partially offset by higher tax paid. This is the highest free cash flow generation for the group since the third quarter of 2011.

Free cash flow before gross capital, the metric on which dividends are calculated, increased by 104% to $361 million during the quarter compared to $177 million in the third quarter of 2019. It should be noted that the $200 million proceeds received on the SA asset sales are excluded from free cash flow.

As mentioned by Christine, free cash flow does not include the cash flows from Kibali, which remains in joint venture bank account in the DRC. As receipts from Kibali for the first quarter totaled $38 million, taking total cash receipts received for the year-to-date to $92 million. The company's attributable share of the outstanding cash balance has not yet been repatriated from DRC, grew by $66 million in the third quarter to $339 million. Barrick, the operator of Kibali joint venture continues to engage with the (inaudible) government regarding remittance of cash balance.

Cash flows were further impacted by matching receivable that continued to be locked up at Geita and at Kibali as well as by increase in lock up of the recoverable export in Cerro Vanguardia The 2020 Finance Act becoming effective from 1 July, 2020, in Tanzania, amending the 2014 Value-Added Tax Act with retrospective effect, thereby allowing for recovery of bank refund for mineral exported from July 2020 onwards. The administrative VAT verification proceeds has not yet resumed at Geita. However, this is just a timing issue. In (inaudible), legislation was adopted to decrease export duty rates from 12% to 8% effective from the end of December 2020.

The total capital expenditure decreased by 31% year-on-year to $161 million in the first quarter of 2020 compared to $234 million in the third quarter 2019. This decrease was largely due to the lower project spend of Obuasi due to the impact of the pandemic on delivering of supply and restricting of -- restrictions on contractor movement as well as capitalized preproduction revenue offsetting a portion of the growth capital spend during the quarter. As a result, gross capital expenditures declined to $22 million in the quarter compared to $90 million in the third quarter of 2019.

Total sustaining capital expenditure marginally declined by 3% to $139 million in the third quarter compared to last year. Our strategy of improving operating flexibility through investment in ore reserve development and reserve conversion at site with high geological potential over the next 2 to 3 years remains firmly on track.

Moving to Slide 12. Our total cash cost for the quarter increased marginally by 2% to $801 per ounce compared to $786 per ounce last year. Favorable exchange rate movements and improved grades were partially offset by inflationary pressure, reduced throughput volumes and higher royalty payments.

Average recovered grade improved by 4% when compared to last year, with the most significant improvements coming from Sunrise Dam, Iduapriem, Geita and Siguiri. Throughput volumes increased on average by 6% with the biggest impact from South African region and Iduapriem. Excluding South Africa, throughput volumes decreased by less than 2%. As mentioned before, a 1% increase in all-in sustaining costs for this quarter compared to last year is a result of higher cash costs.

COVID-19-related impact resulted in the all-in sustaining cost being approximately $51 per ounce higher for Q3 2020 due to $22 million COVID-19-related costs incurred and approximately 18,000 ounces from lost production at the South African operations.

Turning to the balance sheet. We remain committed to maintaining a flexible balance sheet with an adjusted net debt-to-adjusted EBITDA target ratio 1x through the cycle. Adjusted net debt decreased to $875 million at the end of September 2020, a 39% decline from the end of the previous quarter and a 47% reduction compared to the same quarter last year. This is the lowest level of net debt since 2011 and 72% of its peak in 2014, at the time when the company was self-funding its share of the development cost of Kibali and Tropicana.

The ratio of adjusted net debt to adjusted EBITDA at 20 September 2020 was 0.36x competes with 1.06x a year ago. Again, this is the lowest point for this ratio since 2011. We're taking disciplined reduction in debt and robust cash generation from the business.

We managed to achieve the significant long-term balance sheet improvement through our disciplined capital allocation strategy without issuing equity during the whole period. The balance sheet remains robust with strongest liquidity comprising the USD 1.4 billion RCF, of which approximately $700 million was undrawn. The undrawn ZAR 4 billion South Africa RCF and cash and cash equivalents of approximately $1 billion at 30 September 2020, excluding any cash balances at Kibali and Sadiola.

Our new 10-year $700 million bond offering at the end of the quarter was more than 6.5x oversubscribed and priced at 3.75% per annum, the lowest achieved by the company for a bond offering. The net proceeds were directed to repay a portion of the outstanding borrowings under the ZAR 1.4 billion multicurrency RCF at the beginning of the fourth quarter.

The new bond will reduce annual finance costs by $11 million balance when compared to the 2020 bond that was redeemed in April 2020. The initial proceeds of $200 million received from the sale of South African proceeds from assets were utilized to further reduce net debt. On 19 October, 2020, we voluntarily canceled our ZAR 2.5 billion RCF in South Africa, leaving us with ZAR 1.5 billion of facilities undrawn in South Africa. The undrawn $1 billion syndicated bridge loan facility originally entered into April 2020 to provide additional financial flexibility, amidst the uncertainty of the COVID-19 pandemic, was fully canceled in early October.

Our credit ratings are unchanged. We have investment-grade ratings from Moody's and Fitch and the sub-investment-grade rating from S&P.

Turning to my slide on the reinstated guidance. We expect a strong finish to the year, especially at Geita as well as the operations in the Australia and Brazil. As we previously explained during the year, COVID-19 has resulted in some capital expenditure deferrals across the portfolio. The most notable thereof is at Obuasi where we expect $70 million to $90 million of Phase 2 project capital being rolled over into 2021. We expect a significant step-up in sustaining capital expenditure in the fourth quarter of 2020 as we invest in waste stripping in Iduapriem and Tropicana and commence the planned development portion of the third underground mining area at the Geita Hill ore body. These investments will be made in parallel with the ongoing investments in ore reserve development and exploration.

For the year-end -- sorry, for the year-end reserve declaration, our ore reserve pricing will increase by $100 per ounce down to $1,200 per ounce, reflecting the impact of increased gold price. On 21 September 2020, the company reinstated its annual guidance given improved operating certainty amidst the COVID-19 pandemic and in anticipation of the conclusion of the sale of the South African assets, which occurred at the end of September.

The group is expected to produce between 3.03 million ounces and 3.1 million ounces, including 9 months of production from the South African producing assets. All-in sustaining cost is expected to be between $1,060 per ounce and $1,120 per ounce, again, including contributions from the South African assets after the end of September.

Sustaining capital expenditure is forecast between $610 million and $650 million and non-sustaining growth capital expenditure between $280 million and $300 million, resulting in total capital expenditure of between $890 million to $950 million. We remind -- sorry, we remain mindful that the COVID-19 pandemic, its impact on communities and economy, any actions authorities may take in response to it are largely unpredictable.

With that, I will hand over to Sicelo.

Thanks, Ian, and greetings to everyone. I'm now on Slide #16. Let's take a high-level look at the Africa operation. Starting this time with South Africa. The region produced 96,000 ounces during the quarter as all-in sustaining cost of $1,322 an ounce, with production 15% down compared to the previous year, largely affected by the mobilization of personnel after the COVID-19 lockdown and cost impact as a result of the lower production.

Despite the impact, the region generated $50 million in free cash flow during the quarter. The sale of the South Africa region was successfully completed on the 30th of September and marks the end of an era for AngloGold Ashanti in the region.

Now moving on to Continental Africa. The region produced 411,000 ounces at all-in sustaining cost of $903 an ounce compared to 387,000 ounces at an all-in sustaining cost of $900 an ounce in Q3 of 2019. The region continues to perform exceptionally well, assisted by operational excellence drive and efficiency improvement as is evident in the quarterly results. The region generated free cash flow of $218 million during the period compared to $94 million during the same period of last year.

We have delivered solid production cost and cash flow performance for the first 9 months of the year, with the year outlook indicating continued performance in quarter 4. We continue to see encouraging results from Siguiri with substantial improvement in recovery, while the Obuasi development project continues to ramp up, delivering a 52% increase quarter-on-quarter in production and Phase 1 commissioning completed at the end of September.

At Geita, the production performance was aligned to the same period in 2019. During Q3, Geita achieved an all-in sustaining cost of $832 an ounce, 6% lower than the same period in 2019. Post the approval of the mining payment for Geita Hill, mobilization has commenced and ground support for the new portal is underway.

Kibali recorded another solid performance during the quarter, maintaining attributable production at 91,000 ounces coming in at an all-in sustaining cost of $765 a ton. Iduapriem had another strong quarter with on-target production with costs impacted by higher royalties and exploration costs as we drill to find better incremental opportunities compared to the same quarter in 2019.

It is important to note that Iduapriem is entering in an investment stage over the next 3 years in (inaudible) and TSF. Accelerated (inaudible) in Block 7 and 8 (inaudible) continue using split shelf design, which will result in accessing over 2 million tonnes of ore at the grade of 1.75 grams per tonne by the middle of 2021. All of these initiatives are expected to extend the life of mine to 2081. The Block 1 drilling has returned very positive results with an updated model also expected in the fourth quarter.

Now looking at Siguiri in more detail on Slide #17. We'll continue to progress the turnaround initiative, despite some material supply challenges arise from COVID-19. We saw a 7% improvement in recovery quarter-on-quarter as a result of recovery improvement initiatives. Encouragingly, the September recovery on average exceeded 82% with peaks of up to 86% realized. This was likely as a result of completing improvement in gravity, milling and classification circuits. The crushing plant has performed well through the rainy season and continues to meet the 50-50 blend design target, confirming that is the worst season modification and stockpile strategy, has mitigated the challenging experience in 2019.

We reported in the first half about the presence of carbonaceous material with the associated effects on metallurgical recoveries. We have completed the design and manufacture of CIL conversions for 3 additional tanks to improve the plant resilient to (inaudible) maintained the encouraging progress and commissioning its plans for the end of the year.

We are also happy to report that we have received the mining and road construction payment from the government to access the Block 2 mining area. We are planning to declare a new reserve in Block 2 by the end of the year. We are also working to finalize a social partnership with the host community as part of our company beliefs. Block 2 will displace the marginal ore planted material with higher grade oxide seed.

Now turning to Geita on Slide 18. We continue our strong exploration forecast to increase ore reserve. With significantly increased underground resources and reserves from 2015 since entering underground mining for the first time. This strong focus is continuing into the future supported by significant progress of reserve contingent training. As reported, all key regulatory approvals have been obtained for Geita Hill underground, the opening up of Geita Hill underground mineral resource and ore reserves has commented with total establishment. The sequence of mining in stack in Block 1 and Block 2 and proceed that long stride towards the decent side of Block 5 and Block 6. Geita Hill opens up a new bed underground high-grade mining stock for Geita mine. As can be seen from the picture, there is potential for a large reserve along strike, and we will begin to declare new reserve starting in 2021.

Now looking at open-pit potential at Geita on Slide 18, as discussed briefly in the last quarter earnings result. We will be declaring a significant reserve in Nyamulilima district by the end of this year. This area replaces maintained open pit as it was depleted in the current quarter and to ensure that we continue to fill the mill at 5 million tonnes per annum fresh ore over the long term. Subject to government approvals, we expect to be mining in Nyamulilima in the second half of 2021. This area gives Geita the opportunity to gain an open-pit reserve. I look forward to updating you at our next quarterly results with reserve addition which we are expecting to exceed current efficiency.

In conclusion, our focus as we go into the final quarter of the year is to maintain the strong performance of all of our assets. At Siguiri, the team continues to work on improving the recovery rate as it continues to move in the right direction. Our exploration projects continue to yield positive results, and we will update the market with our Q4 results on the -- quarter results, primarily in Geita and Siguiri.

Thank you. And now I hand over to Ludwig.

Thank you, Sicelo, and good day, everyone. The international operations completed a solid third quarter with noticeable improvement across all key operating and financial metrics. I'm particularly pleased to report that our safety metrics are continuing to improve with our all-in frequency rate reducing by over 30% year-on-year.

Starting with Americas. The regions produce 181,000 ounces of gold in the quarter, slightly above the 179,000 ounces delivered in the same quarter last year, with the corresponding all-in sustaining costs which was markedly lower at $963 per ounce. This is $155 per ounce lower than the corresponding period last year. This reflects a strong operating performance from the Brazil assets, which delivered 32,000 ounces more than the previous quarter and 12,000 ounces more year-on-year. This is despite the continued increase in positive COVID-19 cases reported at our operations. This performance was largely due to AGA Mineração, exceeding 103,000 ounces in the quarter, showing that the mine has successfully adapted additional ground support requirements.

Staying in Brazil, Serra Grande's performance was steady at 31,000 ounces and an all-in sustaining cost of $912 per ounce, helped by recovered tranche of 150,000 tonnes in August. Moving to Argentina. Cerro Vanguardia delivered a consistent quarter-on-quarter production of 47,000 ounces during an extended national lockdown which started in March. CVSA as advanced their 2020 drill program, which includes 25 kilometers of diamond drilling to test the expenses of known veins and explore new targets in the district.

Shifting to Australia. The region produced 149,000 ounces in the quarter, which was above the 146,000 ounces reported in the same quarter in 2019, and a significant 19,000 ounces higher than what was delivered in Q2 this year. The quarter-on-quarter improvement can be largely attributed to the new management team at Sunrise Dam, will increase production by 25% and lower total -- cash cost per ounce by 10%.

Gold production at Tropicana Mine was 75,000 ounces, which reflects the planned 13% year-on-year drop in grade as we progress stockpiles and begin waste stripping in Havana Stage 1 cut back. The impact at treating stockpiles has increased the year-on-year all-in sustaining costs from $1,094 per ounce, although this was partly mitigated by operating improvements, including higher mill throughput and bringing the near Boston Shaker underground mine into commercial production.

Moving to Slide 23. Staying with Tropicana, I'm pleased to report that the Boston Shaker underground mine was delivered on schedule and on budget. Production was successfully ramped up to 65,000 tonnes during the quarter and will reach steady-state production by the second half of 2021. The new underground mine will contribute around about 100,000 ounces of gold production per year over the next 7 years on 100% basis. The decision was taken in June 2020 to progress Havana Stage 2 cutback, which will allow access to deeper Havana ore body from 2022. While a cutback is in progress, more feed will be sourced from Boston Shaker open pit and underground mine, supplemented by lower grade stockpile, which will result in a near-term drop in grades.

Looking ahead, Tropicana will continue to deliver between 400,000 to 450,000 ounces of gold production at 100% in 2020 and 2021, and will increase to between 450,000 and 500,000 ounces from 2022 at a low-grade stockpile is replaced by higher-grade ore source from the Boston Shaker underground and Havana cutback.

Moving to Slide 24. It's exciting to report that Boston Shaker and Tropicana ore bodies have both opened at -- to take full advantage of the potential for expenses in orebodies. In addition, an underground drill drive is currently being developed from the Boston Shaker decline to create drill platforms to explore the Tropicana ore body. But first diamond drill rig has commenced drilling. And if successful, we expect to be in a position to access ore as early as second half 2021. We will also continue to drilling down at Boston Shaker and complete the trade-off study between open pit and underground mining at Havana depth and Havana South.

Tropicana's remaining open pit resource of around 3 million will be mined over the life of mine, in addition to the underground resource which is about 2.9 million ounces.

Moving to Slide 25. And Returning to Sunrise Dam, the site team is focused to accelerate the development needed to create new drill platforms, which will allow us to identify additional ore bodies. The primary ore source of Sunrise Dam is the large both orebody, which can deliver a maximum of around 2.5 million tonnes per annum at a grade of around 2.7 grams per tonne. The remaining mold capacity is currently full with 0.09 grams per tonne modules stockpiles, and the immediate goal is to replace this modules stockpile material with full grade ore from other ore sources.

Typical ore sources include open pit the Golden Delicious satellite deposit and approval has been given to begin first shipping this deposit. Golden Delicious associated about 12 kilometers from Sunrise Dam plant and expected to deliver about 136,000 ounces of gold production over the next 3 years, with first gold expected in Q2 2021. We are also currently assessing the feasibility of various other prospects of satellite deposits.

In addition, the underground drilling results have been extremely encouraging, and we -- which has led to an increase in the ore body envelope. This includes a recently discovered Frankie ore body within the waste ramps and extensions to the Vogue and Carey Shear ore bodies.

Moving to Slide 26. And looking ahead, it's imperative that we continue to drive our operational excellence programs to get the most out of our assets. As I've noted before, this includes increasing investments in all reserve development and exploration drilling to identify additional ore sources across our operations. By way of example, the exploration program at Cuiabá has delivered encouraging investments in particularly ore bodies parallel to the main ore body and identified a new ore body called Schlumberger near the existing mines. We have accelerated exploration activities and mobilized additional surface drill rigs. The additional drilling at CdS has confirmed the potential to scale up the Rosalino open pit, expand the Cristina mine and has identified a new ore body called Penang.

At Serra Grande, we have seen encouraging intercepts near existing infrastructure, including the additional high-grade ore bodies at 0 and extensions to other ore bodies at -- and continue to sit at the Palmeiras Sul elements. As I mentioned earlier, the drilling program at CVSA is also well underway and will increase to about 100 kilometers of drilling over the next 3 years. This has the potential to add 1 million ounces of gold and about 7 million ounces of silver resources.

We have a clear path to create value by optimizing our existing operations and continuing to develop new growth projects to add new low-cost ounces to the portfolio. In closing, the focus for 2020 remains unchanged. Prioritizing spend on development and exploration to improve resource confidence and identify new ore sources, growing near-term reserves and creating flexibility, driving operational excellence to improve cost and efficiencies and developing new low-cost projects to add to the portfolio.

With that, I'll hand over to Graham, who will talk to Obuasi.

Thanks very much, Ludwig. Hello, everybody, and this time, greetings from Obuasi. I've tried to find a quiet location, but with a bit of luck, you'll hear a truck run by from time to time.

So the outlook for Obuasi has not changed from what I've reported previously. We remain on track. This year, we are operating Phase 1 at 2,000 tonnes per day. And for Phase 2, which provides capacity to 4,000 tonnes a day. We are targeting commissioning in quarter 1 next year and ramp up to 4,000 tonnes a day in quarter 2 next year.

Despite the COVID challenges, we have made good progress. The team has done an incredible job navigating the impacts of manufacturing and logistics delays and travel restrictions, and their commitment and dedication over this period has been quite inspiring.

I'll talk to Phase 1 operational readiness first. And here, we targeted the 2,000 tonnes a day. And in parallel, we're building Phase 2. Mining rates were constrained by still labor shortages caused by international travel restrictions, especially from Australia, though the focus on in-country recruitment and training has helped bridge the gap.

The mine plan has been revised to account for the COVID limitations of the past 6 months, and this plan achieves the required ramp-up in production in parallel with construction schedule. Good progress is being made in the second mine production area at Block 8 Lower. The mill is performing well and is achieving the planned efficiencies. And importantly, resource reconciliations continue to show good trends. The drilling programs remain on track, and we have now a great control or proven ore reserves out for 2 years and probable reserves out for 10. Our Q3 gold production was just over 46,000 ounces, and total gold production so far is 95,000 ounces. We are tracking operating costs carefully and apart from volume-related variances, unit costs are tracking well for the feasibility study estimates.

Now on Slide 29. And for the Phase 2 construction, the photograph in the slide tell the story. In the process plant, concrete, structural steel, mechanical equipment installation has largely been completed. Piping, electrics and instrumentation works are well above. A pre-commissioning has commenced on the mills and the regrind mill and in the gold drill.

Earthworks for the BIOX TSF and for the water dam is now well advanced. The KRS shaft and the materials handling system rebuild has progressed well. The rebuilt winder has now been certified by the regulator. Regarding the new ventilation shaft, the GCVS ventilation shaft, construction of the fans and the substation is close to completion. However, geotechnical issues has delayed the commencement of reaming of the shaft, which is expected to be completed in late quarter 1 next year.

From a cost perspective, the project remains on budget. As we move into 2021, there will be a continuation of Phase 2, and that capital would be about $40 million in 2021. As I've mentioned previously, there is a third phase to Obuasi's redevelopment, and this involves the upgrade of the KMS and the BSVS shafts and the new ventilation shaft and underground deordering systems. The total capital for that is $95 million and the spread over 3 years, $73 million of which will be in 2021.

I think the last point that I'd like to make is that we're landing the project into a good gold price. When we announced the project in 2018, the IRR was 23% at $1,240 an ounce with a payback of around 7 -- 6.5 years. In the current environment and allowing for COVID-related issues that I've discussed, the IRR is 37% at $1,700 with a payback of around 6 years and a $2,000 an ounce, the IRR ramps up to something like 46%.

With that, I'll hand back to Christine. Thank you.

Thanks, Graham. And the team and I look forward to joining you at Obuasi soon. So just in conclusion, 2020 has been into that with a unique set of challenges. It has nevertheless been ratifying to see strong collision across the business with our global team working to get an exploration team to ensure the business will be in the year in good shape, in fact, even better than 12 months ago. We had a difficult start to the year from a safety perspective, and we'll be looking to continue the strong recovery you see in the subsequent months. We're also in a good rhythm with respect to COVID-19, with our funds embracing the protocols designed to maintain business continuity and keep people safe.

As we progress in Q4, we're well positioned to deliver on our operational priorities. Cash conversion, especially on the DRC, will continue to be a priority for us even as we see the very strong cash flows coming from the remainder of our portfolio. Outlined the recovery of the historical PAT receivable intent in the end remains the focus. As we outlined, our cash on hand complemented by the strong cash flow generated across the business will translate into funds return to shareholders. The operational and exploration team continues to see at our order conversion initiatives where we've seen progressive returns from our investments.

And at Obuasi, despite the hurdles during the year, we remain laser-focused on the completion of Phase 2 construction at the end of Q1 2021.

Likewise, we aim to progress our Colombian projects within the first half of 2021, with an aim of adding new gold ounces to our portfolio. And we will not, for a moment, relax our discipline in managing costs and capital, ensuring we capitalize on the strong gold past environment.

On the Wafi our costs improving, and we have a fleet of catalysts in the short, medium and long term. Our aim remains very clearly to build a solid, predictable business to deliver value through the pipeline. Thank you.

And with that, we'll open the call for questions.

(Operator Instructions) The first question we have is from Shilan Modi from UBS.

A couple of questions from my side. I think that you guys have done well for the -- during this year, during a difficult time. You've improved the cash position in the business. And I think that's partially what's driving the change to the dividend policy. Maybe give us some more color on the thought process you guys went through as a team and with the Board when changing the dividend policy, the reason I ask this question is because of the potential projects that you have on the cards coming next year? And how does that play into your thinking? In case the gold price had to pull back, you'd effectively be leveraging up while paying dividends, higher dividends than otherwise. So that's where the question is coming from.

The second part of the -- a second question for me is just what's your thinking and position on the cash lockups that you have currently? So there's a back lockup in Tanzania, and then there's a back lockup and a cash restriction or lockup in the DRC just provide some additional color on that.

And then if you can, I mean you mentioned that you're going to be increasing your exploration expenditure or converting more resources to reserves and getting more resources as well. Maybe just give us an idea of what you think the cost of that would be per year, so like in dollar million terms?

Okay. Thanks for those questions, Shilan. I'll ask Tim to take the last question. I'll deal with the first 2 questions. So I think, certainly, when we talk about our dividend policy, it's certainly within our -- this is how we look at our capital allocation framework to ensure balance across prefab withiin that framework. I think, firstly, the first color is about reinvesting in our ore body to improve reserve confidence and self-funding our capital provident, be it brownfields projects or greenfields projects through the cycle.

Secondly, it is about our balance sheet and product and reproduction, which we've done, and that is actually positioned us at the level in over the 10-year period. And then thirdly, it is about the dividend payout to shareholders, which we think is 20% of free cash flow before gross capital. But I think certainly when we've looked at it in the discussion with the Board, we do plan prudency over the long term. Our diverse planning price is $1,200 an ounce as we speak. And so that is what's being captured in our play. We do have a revenue planning price assumption, which is just about $1,400 an ounce. And what we assume is -- clearly we're happy with the debt years. And clearly, with improved cash flow, we do see debt reducing further. And then we will be self-funding our capital requirements. And so we're quite comfortable that debt -- dividend payout can be sustained through the cycle. So I hope that gives you comfort regarding the dividend.

I think specifically regarding the cash lockup in the DRC, I think this -- the amount has increased by $66 million in the quarter to $359 million, and that's ADA shape. This would have been 60% of the free cash flow generated by the body since the change in the mining code in late 2018. I think bear in mind the cash is available to provide and it does fit in the dollar account in the need of the JV. So Barrick who is our JV partner, who is also the operator, does continue to engage with the DRC government growth regarding the 2018 mining code and the cash on fab creation. And we do remain in close discussions with Barrick in that regard. We certainly had acknowledgment by the government that they need to allow for their refab creation to encourage investments in the country. And there is basically a release, a pre statement last week, where the CEO, Mark Bristow has recently had a meeting with the President of the DRC in country. But definitely we are being very positive developments, and we believe that it is a matter of time before the we are looking for cash.

I think specifically relating to the PAT in the DRC, it does not put in our working capital amount on the balance sheet. But I say also, we've seen the reduction of corporate, that gains corporate taxes and at least 30 agreements that was reached with the governance in late 2018.

As regards to Tanzania, it is an historical PAT balance of $131 million. And that we are engaging with the tax authorities on -- and in regards to recovery mechanism. And we've had similar recovery mechanisms in Tanzania in the past. And so we'll certainly see we post it on that. I think specifically, there were changes, again, to changes in the finance in terms of year from July -- in July 2020. And so hence, we're not expecting any further PAT lockup going forward because what the finance is allowed for after following an administrative proceeds that we are being able to automatically offset PAT against corporate tax.

Tim, I now hand over to you with regards to the thing relating to reserve conversion.

Yes. And when you look at the spends related to reserve conversion, strictly on the spending for resource reserve conversion, it ends up being about $60 million to $70 million in that range. And when you look at the entire exploration investment portfolio from both brownfields and greenfields investment, that will be in the range of about $170 million.

So if you put them together, you're going to be looking at just under $250 million?

Yes. Sounds like that.

The next question we have is from Liam Fitzpatrick from Deutsche Bank.

Okay. Can we...

Hey, Liam.

Sorry. On the Colombian projects, a couple of questions on those. So the -- it seems like we're getting closer to a decision there, given the feasibility study results are expected in H1, when do you anticipate the projects could go forward for Board approval? And then in terms of the development strategy, are you still planning to bring in an additional partner? And is the likely path that you'll develop both of these projects simultaneously? And then on the CapEx side, I know we'll get detailed guidance early next year. But can you give us a rough kind of feel and range for sustaining CapEx next year compared to 2020?

Thanks for those questions, Liam. I think, specifically, I'll ask Tim to address the sustaining CapEx guidance on a dollar per ounce base for this year. I think specifically on the Colombian project and certainly in terms of our sales strategy. So the correct index, that we started in the completion of the feasibility study of these projects within the first half. We see Gramalote slightly a bit of Quebradona I think just bearing in mind that the we do have a partner, we've also now the operator ready to go. It's a 50-50 partnership. And so certainly, the feasibility study we started is in completion by the end of March 2021. And so also bear in mind that these projects that we permitted. And so that can proceed quite soon after Board approval.

I think specifically relating to Quebradona yes, we are targeting the feasibility study to be completed by the middle of next year. And in particular, so we're targeting and receiving the environmental service in that time frame as well. As regards, we are looking at building the best projects on our own. But I think as regards to financing or risk mitigation options, I think that will be for exploring. And I think in particular, in the fourth half total pay agreement or supplier base financing and project financing, these are all part of what we are seeing in the feasibility today. I think as I referred to the affordability on our balance sheet, I think, certainly, we are able to self-fund our share in Gramalote as well as the Quebradona project. But we certainly not closed to looking at other forms of financing as well.

And then Ian, on the sustainability. Thank you.

So Liam on the sustaining capital number, obviously, this year, we flagged to the market, which we're looking at a range somewhere between $200 and $230 per ounce of the additional $30 per ounce for the resource and reserve conversion. And that process will continue. We said that it's a multiple year investment in order to convert that.

On top of that, you need to consider the new compliance requirements that's coming out, especially from Brazil on the tailing side. And we put that on the market update, the expectation of what that spend would be for us in the region of between $70 million to $85 million is quite a step-up from 2020 levels of around $25 million to $30 million and it's a one-off step-up in order to ensure compliance to legislation that was promulgated in Q3 in Brazil.

And I think in addition to that, just to bear in mind that there's also the continuing, the first dripping drives that's carrying on the premium in Tropicana as well as the our redevelopment. And Obuasi will also start to play in on the sustaining CapEx numbers because it would be the first full year where we will see sustaining CapEx coming through shifting from growth capital to sustaining capital. Actually, that gives you a sense of what's happening on sustaining CapEx side.

Thanks, Liam. We'll be in a position in February next year to give you more definition around -- we are aiming for longer than guidance. So it will take 2-year guidance, next year figure, and we'll give you more flavor regarding both sustaining and gross capital.

Ma'am, we have one final question. Are you able to take it?

Yes, we are.

The last question we have is from Patrick Mann from Bank of America.

I wanted to follow-up just on Geita and the longer-term outlook. From what Sicelo was saying, it sounded like there's going to be a gap in open pits or that's available until the new areas being stripped. Can you just kind of give us an idea of what it looks like? Is it only underground ore from now? And when will you be able to call them all again?

And then the second question is, you've seen very, very good improvements at Sunrise Dam and Mineração, as you guys pointed out, how sustainable are those from here?

Thanks, Patrick. So Sicelo will handle Geita and Ludwig will talk to Sunrise Dam and Mineração.

Thanks, Patrick. I think the way to look at Geita is that the -- of the office or the -- for this year has been in Nyankanga open pit, which depleted during the course of this quarter. Nyankanga underground ore plus then the design comment also. So those are the 3 predominant -- also this for now. And then on a go forward basis, we've still quite a lot of a stockpiles -- high grade stockpiles from Nyankanga where we finished at waste. In order, really at the bottom of the pit, hardly any waste mining. So we build up stockpiles for -- that last till about 12 to 14 months and those stockpiles will be carried out into 2021.

So going into next year, expect the stockpiles to be coming in, then we, of course, spend commercial, of course, Nyankanga and at the same time, they were opening up the 2 new mines of Geita till underground as well as the (inaudible) open pit. Production-wise in terms of profile, this year certainly will be a record. I think this year would be, if not the highest in the history of the mine, very strong production. Next year, we'll see a slight pullback as we sort of set up the mine. And then 2022, then we should be back in the 500 to 600 ounce range in production sort of level.

Patrick, this is Ludwig. Just to comment on your question around Sunrise Dam and the Brazil operations, the focus for the last year and continuing going forward is focusing on the ORD, and that could create the flexibility and also in the useful drilling to create that confidence in the ore body. And that's going to continue as we go into 2021. And what you've seen recently is actually the result of that extra flexibility that we've created in both these operations and also the confidence we've got -- we're gaining every month almost on the ore confidence. So going forward, you will see short-term fluctuations, maybe, but we will continue with this progress in drilling and the flexibility. And we're confident that we will actively maintain this what we've seen in the last quarter.

Thanks, Patrick. All right. So finally I'd just like to thank you for joining our call today. And I'd also like to thank you for the support that you've given us during the past year. I think certainly and quickly approaching, but I'd like to wish everybody the safe holiday season, and we look forward to engaging with you at year-end results in February next year. Thank you, and goodbye.